Monthly Archives: August 2016

Airbnb Short-Term Rentals Have Never Been So Easy... Or Have They

On April 15, 2016, Quebec became the first Canadian province to regulate home-sharing services. Now, under the provincial law, homeowners who frequently rent out their property must acquire the same certification as hotel and bed-and-breakfast operators. In other words, if you’re interested in vacationing in a Quebec home, the owners are obliged to charge lodging taxes up to 3.5%. Why? All because of a company called Airbnb.

Founded in San Francisco in 2008 and currently valued at over $25 billion, Airbnb is a fairly new company for its success. The online platform prides itself on being a trusted community marketplace for people to list, discover and book unique accommodations around the world. The statistics easily prove this statement correct, with over 60 million guests and 1.5 million listings in 34,000 cities across 191 countries. Airbnb allows anyone to sign up and rent living room couches, small apartments, beautiful houses, penthouses and even castles for their dream vacation, all at a wide range of prices to accommodate every budget.

Why Airbnb?

Airbnb isn’t just for travellers who need a place to crash in a foreign city. Without renters, there would never be short-term leasers. Anyone who owns residential property can register to be an Airbnb host and rent out their space under three categories: the entire home, private rooms or shared rooms. Of course, homeowners don’t open their doors to the public just to flaunt what they have. Hosts pick the price of their listing depending on a few suggested factors such as size, location, amenities, and when a guest books their home Airbnb only takes a small 3% service fee. The remaining money is pocketed by the homeowner making Airbnb a respectable and effortless money incentive.

Canada is one of Airbnb’s largest markets across the globe, with Montreal ranking in its Top 10 cities and statistics showing over 650,000 guests having stayed at Airbnb rentals during their travels in the country over the past year. In May 2016, there were roughly 9,500 Airbnb listings in Toronto with just over 60% being for entire houses. Similarly, over 4,200 hosts in Vancouver provided 6,400 units for rent through Airbnb, with 70% of those listings for entire homes.

A study shows the average Canadian Airbnb host makes about $6,500 annually through occasionally renting out space. Although this sounds like a sizeable amount of disposable income, further studies show that renters aren’t just pocketing their earnings. Aaron Zifkin, Airbnb’s country manager for Canada, stated that over half of people listing their properties do so to pay off their mortgage or to put towards monthly expenses. In large cities like Vancouver and Toronto where housing bubbles are inflating prices, Airbnb is a great opportunity to earn supplementary income to put towards the hosts’ basic costs of living. For example, an Ottawa townhouse owner who pays a $1,000 monthly mortgage has been earning $8,000 per year renting out a spare room on Airbnb. This helps them cover two-thirds of their year’s total mortgage.

Airbnb versus The Nation

However, as Airbnb’s popularity grows so do the negative side effects. To begin, Airbnb’s country-wide growth of 125% means an increased number of hosts in each city competing for guests. Furthermore, this new type of market has caused a slew of regulatory problems with city bylaws, landlords and even the national economy’s well being.

On a macroeconomic scale, Airbnb is a suggested factor affecting the Canadian housing bubble. Vancouver, and on a smaller scale Toronto, has seen extreme price increases for residential units while supply has stayed low. However, a recent analysis revealed that there are over 5,000 short-term accommodations listed in the Metro Vancouver region. So, while municipal councillors grapple to generate more rental housing for locals to live and work in downtown Vancouver, there are still thousands of places for tourists to stay on their visit to the west coast city.

The biggest threat is homeowners who frequently list their “entire home” for short-term rental over a long period of time. Doing so implies that hosts aren’t residing in their property and using it as an investment to generate income. Therefore, British Columbia has teamed up with the City of Vancouver to impose a vacant home tax in hopes of freeing up empty residences and increasing housing supply for long-term rentals or purchases.

Similarly, a nation-wide coalition craftily named “Fairbnb” has called on Toronto to regulate short-term rentals in the city and across the country. Chairwomen Lis Pimentel has a very open-minded approach to their mission and has no intention on outlawing Airbnb. Rather, she is opening up a discussion about affordable residential housing and how it is shrinking due to commercial and tourism intentions. Fairbnb is kindly asking “Canadian cities [to] modernize their laws and enforcement so that there are fair, consistent and respectful market rules for short-term rentals.”

Airbnb versus The Hosts

With all this in mind, Quebec has been the first province to make a move in the “fair” direction. Now, short-term renters will be registered and certified like all lodging establishments. This will help distinguish who is using their residential unit for commercial use and tax them accordingly. There will also be a penalty for those who dodge these taxes. A Montreal man has recently been charged $60,000 by Revenue Quebec after realizing he wasn’t claiming income tax from his Airbnb profits. Officials got wind of this after the man posted a video online explaining how he was able to pay off $500,000 in debt and then earn an additional $200,000 from short-term rentals.

In Quebec, tenants must obtain the landlord’s permission to rent their unit in the short-term. The neighbouring province of Ontario has a Residential Tenancies Act which states that the occupant cannot sublet their residences for a greater amount than what the landlord is charging. Furthermore, many condominiums forbid short-term rentals due to the safety of the building’s residents. Homeowners who violate any of these circumstances to cash in a few extra dollars through Airbnb risk excess taxation, legal fees, or even worse, eviction.

Perhaps most importantly, hosts should consider the overall well being of their home when listing it on Airbnb. Allowing an unknown face into the comfort of your own home, whether you’re there or not, is extremely trusting and can leave your property vulnerable to disrespectful sublets. A prime example of this is the infamous Calgary incident, where renters engaged in what the police described as a “drug-induced orgy”, resulting in roughly $75,000 in damage. Although Airbnb offers a $1 million insurance policy there are still loopholes in the fine print that do not cover all areas of potential damage.

Potential Hosts Be Wary

You may need a little extra help paying off expenses or perhaps be going on vacation and don’t want your property to sit empty, but there is a lot to consider when becoming an Airbnb host. Therefore, if you’re looking to list your home or condo do your research beforehand.

To begin, familiarize yourself with provincial and municipal laws. Is your lot zoned accordingly? Do you need a permit or license to legally allow short-term guests into your house? Are you subject to rental income taxes? Local policies vary quite a lot from city to city so make sure you are fully informed on your specific region so you can avoid penalties or hefty fines.

Once you fully understand the provincial and municipal legal aspects of being a host, acquaint yourself with your property-specific situation. If you live in a condominium, does renting with Airbnb adhere to your building’s board rules? If you’re a tenant, does your landlord endorse your listing and pricing of the unit? Of course, don’t forget to look into the Airbnb insurance policy as well as your own house insurance to see what is covered and what possible scenarios and assets are subject to risk.

Lastly, consider the extraneous variable that is out of your reach – the actual guest’s behaviour. You could be unlucky and host a bad guest who may not be respectful of noise, cleanliness, damage or even criminal activity. As a host, you are liable for what goes on inside your property, so ask yourself: is the risk worth the reward?

All this being said, Airbnb is an extremely well-regarded company that has connected renters with owners for good value through an extremely convenient platform. After operating for over eight years, the website has worked out a lot of its kinks to make each rental a pleasant experience on both ends of the spectrum. Listing a property is easy, but knowing your ownership rights, property-specific regulations and the locals’ laws are a lot less straightforward. Consider all aspects before signing up and if the risk is worth the reward then you might have a few extra dollars in your bank account!

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Vacant Home Tax

On July 25, the provincial government of British Columbia will officially give the City of Vancouver the power to implement a vacant home tax. But why would the west coast city need such a toll? Data was released in the past months revealing that more than 10,800 condo units sit empty in Vancouver, even though the local population struggles to find affordable accommodation due to a housing shortage.

The study was conducted and released by Ecotagious, a software company hired by the city to analyze domestic electricity consumption of over 225,000 homes in Vancouver. The data was provided by BC Hydro and each home was deemed vacant for the month if the electricity usage showed little change over 25 days. If this pattern repeated for August and September as well as the following June and July it was declared empty for the entire fiscal year.

The findings were both understandable and shocking on two different fronts. The city concluded that the single-family home vacancy rate was steady at 1%, in line with previous calculations since 2002. The more extreme statistic showed that over one in 10 condominium units in Vancouver are currently sitting empty.

Vancouver has found itself in a tough situation right now. Earlier this year, the Canadian Mortgage and Housing Corporation (CMHC) gave warning of strong evidence of overvaluation in the city’s real estate market. 91% of Vancouver homes are currently worth $1 million or more. In December 2015, the average price of a detached home was around $1.65 million, 175% higher than 2005’s average of $600,000.

As prices rise, first time home buyers are turning to condos. That being said, the average price per unit has increased from $400,000 in 2013 to just under $600,000 in today’s market. Moreover, it is unlikely to find a new condo in Vancouver’s downtown peninsula for under $1,000 per square foot. All in all, young Canadians are struggling to find a decently priced condo, let alone detached home, in a market that has basically doubled in value over the past 10 years.

But if the simple rule of economics were applied to this situation doesn’t the supply of 10,800 vacant condos reach the demand of the Vancouver population? Furthermore, if that is the case then why do housing prices continue to increase exponentially? The answer is the growing influx of foreign investment in Vancouver real estate. Many people overseas are exchanging their currency for Canada’s weak dollar and purchasing real assets. In other words, they are snapping up Vancouver properties and letting them sit empty, waiting for their value to appreciate over time.

Another important point to consider is that although the Ecotagious’ study is concrete on most fronts, it does not accurately catch all situations of vacant homes. Houses used only during summer months as well as houses rented out on Airbnb and similar platforms are actually overlooked due to the methodology of the study. This is because both scenarios will show enough variability to disqualify them from the vacancy requirements. With this in mind, the City of Vancouver can only assume that there are even more vacant properties dispersed around the region.

Vancouver Mayor Gregor Robertson has made it clear that the issue is ultimately about supply. This is where Vancouver’s vacant home tax comes in. The aim of the vacant home tax is to free up long-term rental stock. If condo owners pay a premium on an investment sitting uninhabited they will have even more incentive to put it up for lease. Furthermore, the revenue generated will be put towards financing new housing developments.

However, the BC government must give Vancouver ‘statutory powers’ before they can implement a tax to this magnitude. Toward the end of June, Mayor Robertson initially called on the provincial authorities to help with the municipal toll. Two weeks later on July 11, Finance Minister Mike de Jong announced that British Columbia would give Vancouver permission to move ahead with their plan. When asked about the issue de Jong responded by saying “it strikes us that if the city wants to do this, it is a reasonable request on their part.

After the provincial government works out the legislative details on July 25, it is fully up to the City of Vancouver to determine the tax rate, as well as the parameters on who to tax. The main issue is how to decide a property’s vacancy status and if it is eligible for taxation. Due to strict privacy regulations, BC Hydro cannot release specifics on which addresses are deemed uninhabited. Therefore, Robertson and his staff must come up with a different system to identify empty units for the vacant home tax.

One proposal is to create a new class of property called ‘residential vacant’ and relate it to empty or under-occupied investment properties. The criteria fitting this category of housing would most likely include second home owners in Vancouver who use the property on occasion and short-term rentals such as Airbnb listings.

Due to recent contention regarding a substantial number of foreign investors in Vancouver, mainly the Chinese middle and upper class, there has been some speculation that non-Canadian residents could be taxed for owning property in the city. Mayor Robertson has assertively denied these claims, citing how targeting non-residents would be discriminatory. The city’s authority stands strong by their view that applying a tax based on nationality is not going to resolve this issue. The vacant home tax will be formulated to fix the real problem based off of how the properties are being used, not who owns them.

Vancouver’s housing bubble is delicate and there is no way of predicting when it’s going to burst. There is also no way of knowing how the market will react to the vacant home tax. Nevertheless, something must be done. Demand is exceeding supply and prices are at an all-time high. The citizens of Vancouver want affordable housing that is up to Canada’s standard of living. If a vacant home tax is the solution to free up unused property and allow those who want to live in it versus leaving it empty, then so be it. Regardless, there will be many anticipated reports to come in the next few months regarding Vancouver’s housing market and the structure of the borderline-notorious vacant home tax.

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Chinese Investors

Back in 2013, the Chinese government decided to crack down on their very own housing bubble. This included implementing stricter regulations on the 20% capital gains tax for property sales as well as increasing down-payment requirements for mortgages on second homes. Chinese investors, both commercial tycoons and yearning homeowners, needed a new place to go and spend their money.

Meanwhile, housing sales in Canada were on the decline. The country’s largest condo markets, Toronto and Vancouver saw a 7.8% and 25.5% drop respectively in existing high-rise and apartment sales. It was around this time where the Chinese saw the potential to capitalize in Canada and began investing in the Canadian real estate market. In recent months, this effect has been accentuated since China’s turbulent stock market has become virtually unprofitable for investors. Therefore, their citizens have even more incentive to buy into Canada’s real assets.

Foreign funding, from any nation, has started to fuel Canada’s housing market with the average investment from a Canadian citizen or permanent resident at $735,000 versus the staggering $1,157,000 from buyers abroad. However, a more shocking statistic from a recent study in British Columbia showed that 76.6% of foreign buyers for residential properties were from China. Furthermore, Chinese buyers are the largest foreign investors in Canada, holding 65% of the market within the first six months of 2016. This works out to be $1.3 billion, compared to the $309 million at this time last year.

What Is So Appealing From A Social Perspective?

There are of course more reasons for Chinese investors to purchase real assets abroad. Many of the Asian middle and upper class have enough money to establish a decent lifestyle in Canada where the way of life is slightly more refined.  Many Chinese immigrants actually perceive Canadian tendencies to be generally more ethical and respectful than in their homeland.

Pollution plays another strong role. In China, AQI indices are checked regularly to predict the intensity of grey skies and smog. In stark contrast, Canada is known for its fresh air and a plethora of outdoor activities. Living in a society where surgical-style face masks are uncommon is truly enticing, not only for enjoyment but also for one’s overall health.

Statistically speaking, Chinese citizens have the second highest population out of the total number of Canadian immigrants, next to the United Kingdom. Furthermore, upwards of 1.5 million Canadians are of full or partial Chinese descent. With such a large Chinese community across the nation, it has proven to be quite easy for Chinese immigrants to assimilate into society. Some actually say they hardly feel like foreigners at all thanks to the strong sense of openness and pride amongst local Asian communities.

Canadian Developers Working In China’s Favour

When developing a condominium in Canada, lenders want a sense of security, generally asking for builders to sell around 70% of the building’s units before initiating construction finances. With so many condo projects nationwide, including over 115,000 individual units scheduled for completion in Toronto, developers have been heading directly to China to pursue foreign buyers.

Canadian real estate agents, who usually have ties to China, regularly travel to Beijing and Shanghai to showcase new developments to upper-class families and other potential buyers. Macdonald Realty Inc., a Vancouver based broker, actually has a sales office set up in Shanghai to sell Chinese investors a variety of condos units in Toronto, Montreal and the west coast.

Developers see this tactic as a great business strategy given the increased competition in the Canadian condo market and the never-ending announcements of new developments. Nevertheless, heading directly to Chinese investors is making it easier than ever for them to purchase properties without thinking twice. Not only does this add to the housing bubble but there is no sign of foreign buyers slowing down as long as developments continue to be built.

The Current Situation: Canada’s Market Vulnerability

What does all this Chinese investment mean for Canada’s housing market? With foreigner buyers, including Chinese investors, snapping up condos, supply decreases and prices are boosted. This leaves little leeway for Canada’s domestic population who are now struggling to afford a home for themselves. Prices for both single-family houses and condo units have risen dramatically over the past few years and local Canadians are suffering.

The best example of this is in Vancouver, where only a decade ago people of all ages could live a nice and comfortable lifestyle downtown. Now, home ownership is basically beyond the reach of the younger population. Nevertheless, over 10% of condos in the west-coast city remain vacant. This is partially because over the years foreigners have invested in properties with no intention of inhabiting them. Sadly, locals want to live in these empty units, but foreigners beat them to the punch with their higher bids.

Although a vacant home tax has been proposed for this specific issue, economists worry about how the Canadian housing market will react. It has reached a point of sensitivity that even the smallest change could send the industry over the edge. Imposing a special tax could decrease foreign investment, the main driver of the current market. Without foreigners to purchase condos, construction would surely slow and that would deprive the Canadian economy of countless jobs.

At a time where Canada’s dollar is weak and the market is delicate, it is hard to predict what is best for the national economy. Foreign investment is proven to be important, but so is the Canadian population’s right to live in housing where inflation is at a fair rate. It is a vicious cycle and only time will tell how it will all play out.

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Minto Beechwood Condominiums

Five years ago the Minto Beechwood Condominiums would have been seen as outrageous to the local community of Ottawa’s New Edinburgh. The intersection of Beechwood Avenue and MacKay Street was dotted with low-rise apartments and many small businesses like Hamie’s Diner, Lester’s Your Neighbourhood Barber Shop, Time Sharpening and The New Edinburgh Art Gallery. However, a five-alarm fire sparked inside the bordering Home Hardware left 12 locals homeless and caused extensive damage, mostly beyond repair, to the block.

Now, half a decade later, the fire’s destruction is well in the past. Minto Communities has successfully turned a devastating story into the forward-thinking Minto Beechwood Condominiums. The 129-unit development at 411 MacKay Street is nearing completion and ready to open its doors to eager condo owners in the last half of 2016. The building stands 8 1/2 storeys high, the perfect height to ensure that the view of Parliament Hill is still visible from the Beechwood cemetery, an important aspect of one of Ottawa’s oldest neighbourhoods.

Yet, despite Minto Beechwood Condominiums’ favourable outcome, the community-oriented population was not always welcome to the idea of a mid-rise development. In 2013 the original proposal was a huge topic of conversation for The New Edinburgh Community Alliance (NECA). They were quite opposed to the plan, stating that is was perhaps too large and tall to fit in in the village-like neighbourhood.

Soon after, Toronto’s TACT Architecture reached out to the local community to win their approval. After much collaboration, they tastefully designed Minto Beechwood Condominiums to not only blend in but brighten up New Edinburgh’s overall appearance and atmosphere. The neighbourhood’s local landscape was attentively taken into account when choosing warm and earthy tones as well as the masonry work, such as the buff stone, for the exterior.

The clean and contemporary mid-rise is seen as a much-anticipated revitalization for the area. New Edinburgh had experienced a slow decline in pedestrian traffic and local business since Mountain Equipment Co-op relocated to Westboro in 2000. For many years the neighbourhood has silently pined for an exciting restoration and Minto Beechwood has high hopes to do just that. The mixed-use development has an inviting 17,000 square feet of commercial space, welcoming retailers to open shop in the condo’s ground floor along the bustling Beechwood Avenue.

To further Minto Beechwood Condominiums’ practical-meets-modern niche, II BY IV DESIGN has fashioned a stunning interior look. Each individual unit is equipped with hardwood floors, caesarstone countertops, stainless steel appliances, porcelain tiles in the bathrooms as well as a private terrace or balcony. Recognized for its environmental outlook, Minto Beechwood has been decorated with low VOC white latex paint, acoustic cork underlay beneath the hardwood floors and energy-efficient appliances.

Nevertheless, Minto Beechwood Condominiums’ main draw is the kitchen. Through focus group research, Minto Communities found that condo buyers tend to find unit kitchens and appliances smaller than the typical single-family house. So while small units come with gallery-style kitchens, most condos in this development have been designed with L shaped kitchens including a standard island and stainless-steel range hood. With a more welcoming and open feel, Minto Beechwood has marketed its units toward down-sizers, first-time home buyers and investors.

Units are sized between 560 and 1,602 square feet with pricing from $250,000 to upward of $1 million. Underground parking and individual storage lockers are also available at an extra cost. Minto Beechwood Condominiums is of course equipped with the usual communal amenities designed with extra taste and comfort. These include a fully furnished lobby, gym, lounge, dining room and the rooftop terrace.

Floor plans at Minto Beechwood Condominiums

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